A closer look at NSW politics - without a vested interest, an agenda to push or a chip on my shoulder.

Thursday, December 22, 2011

A Wider View

Public Transport has to be among the highest priorities for a state government. For a government in a state where public transport has been neglected and designed on the back of an envelope for so long, the need is even more pressing.

It is appropriate that the O'Farrell be pressured to keep its public transport promises.

But that doesn't mean that no new roads should be built under any circumstances.

Certainly when it comes to chosing between a road project and public transport project, it would be tough to convince me that the road project is a better option.

Road projects typically begat more traffic, and frequently result in no net reduction in travelling times. NSW's long history of road project shows how often that is the case.

Having said that, there is a place for the Public Private Partnerships that the Labor government was so enamoured with. Many of the roads we now have were built at little or no cost to the public purse, meaning that the government had funds available to spend on public transport.

The fact that, for the most part, they failed to do so is a separate issue. PPP's are, in principle, a good idea. User pays to drive, which seems like an eminently sensible way to give commuters the option they often need, but also encourage public transport for those who are able.

The problem in NSW was the repeated failure of companies who engaged in these PPP's. Why they failed is a bit beyond the ambit of this post, but suffice to say it must be difficult to convince a company to engage in a new partnership when the last few infrastructure partnerships with this government have been such abject failures for the private sectors.

The M5 is operated by Interlink. Interlink has a contract allowing it to collect tolls until 2023, upon which ownership will revert to the state.

The road is 2 lanes for most of its length. Labor negotiated at length with Interlink to widen the road to 3 lanes, but it appears that agreement was never reached.

As part of the election campaign, O'Farrell promised that the road would be widened, and he has now signed a contract the deliver on that promise.

The original plan had been that the toll collection period be extended by 4 years.

Labor had, during the campaign, criticised that option, saying that it was $680 million (tolls of $170 million per year times 4 years) in exchange for a project that would cost $350 million. Of course, that ignored the obvious fact that it was $680 million 13 years from now in exchange for $350 million worth now, which any first year actuarial student will tell you is a very different proposition.

In any event, agreement has now been reached on the following terms:
- tolls collection period extended for 3 years
- truck toll to increase from 2.5 times to car toll to 3 times
- the government to contribute $50 million in noise abatement

Usually, widenings like this only achieve something if they occur at the bottle neck. I almost never drive on the M5, and don't think I have ever done so in peak hour, but I understand that the main bottle-neck is at the M5 tunnel.

This article suggests that a duplication of the tunnel would be enormously expensive - some $4 billion. With the other promises that O'Farrell has to fund, that would seem to be thoroughly beyond the government's means.

However, O'Farrell claims that 60% of the road users get off before the tunnel, meaning that these users will get considerable relief once the work is done.

That would seem to be consistent with a traffic study that suggests that the widening will decrease the rate at which traffic levels build up on the road.

At the end of the day, this deal appears to cost the government very little, and may actually result in a significant benefit to many drivers. True, in the fullness of time traffic will expand to fill this new space - but user pays means that this new traffic will provide significant income to the government once the tolls are removed in 2026.

There is one final thing to be said - the Cashback scheme. This is amongst the dumbest ideas a NSW government has ever had. Private vehicles who use the M5 are entitled to claim back their tolls. Why? It's hard to say.

Now that Cashback is in operation there is no way that O'Farrell could "sell" a proposal to remove it. That's roughly $100 million per year that could be far, far better spent.

1 comment:

Part of PPPs, that's often forgotten, is that they take the risk away from the government (i.e. the public) and into private hands. But risk goes both ways - something can be incredibly successful/profitable (the M7 or M2 are good examples of this) or not (e.g. the Cross City Tunnel and Lane Cove Tunnel). You don't know which it is until it's built.

This issue of risk is different to the actual cost, and is often overlooked because these projects are looked at in hindsight. But without hindsight, no one knows if the next project will be an M7 or a CCT.

That said, I think PPPs work much better on road projects than rail ones. Not to say there aren't rail based PPP models that work (e.g. the light rail and monorail run at no cost to the taxpayer, excluding the recent inclusion of the light rail in myZone). But please no more repeats of the Airport Line model!